Small companies have been handed a £300m lending boost by the Government as
Vince Cable launched the first stage of the state Business Bank to ease
constraints on credit starved entrepreneurs.

The Business Secretary said the money will be matched by at least the same amount from private sector backers as part of a drive to reduce small and medium-sized businesses’ over-reliance on giant high street banks.

The Government is hoping to attract applications from a wide range of lenders to distribute the funds, from small ‘challenger’ banks, to independent asset-based lenders and online platforms which match retail investors’ cash with small companies who are eager for capital.

However, there are concerns about how quickly the money will be deployed. The first loans will not be made until the Autumn at the earliest and lenders could still be submitting applications to distribute the funds as late as February 2014.

Mr Cable said: “Small and medium-sized businesses are still telling me that access to finance is their number one problem, preventing them from investing and growing.

“Today’s £300m boost shows we are serious about increasing competition and diversity in the business lending market. Establishing a lasting business bank institution is a long-term project, but getting this money reaching SMEs as soon as possible is the first step.”

The money is the first deployment of the £1bn of capital that has been allocated to the Business Bank, which will not be fully operational until next year.

The move was broadly welcomed by business groups.

However, Alex Jackman, head of policy at the Forum of Private Business, said: “The overriding message has to be that this money needs to be out the door fast, and not getting jammed in it.”

Adam Marshall, director of policy at the British Chambers of Commerce, said:"Vince Cable is right to say that the creation of a fully-fledged Business Bank is a long-term project.

"However, for the Business Bank to be a game-changer, it urgently requires both vision and scale. To that end, we continue to urge ministers and the Bank of England to 'think bigger' when it comes to the bank's investment capital, to ensure the bank can operate independently of Whitehall, and allow it to work directly with dynamic new and growing companies as soon as possible, and for the long term."

The BCC has said it is “ridiculous” that the state bank has not been set up more quickly.

Mr Cable made the announcement on Wednesday during a visit to a small chocolate making business in Enfield.

The Government cited new research by the National Institute of Economic and Social Research (NIESR) which found that small companies have been disproportionately affected in their ability to access finance as a result of the contraction in bank lending since 2008.